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Ontario Becomes Minimum-Wage Testing Ground

The Canadian province is planning to launch a dramatic 32% pay increase over the next 15 months.

October 3, 2017

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​NEW YORK – Bloomberg reports that Ontario (Canada) is about to become a test case for whether a higher minimum wage will boost living standards for the most vulnerable workers, or hurt them by forcing employers to cut jobs.

The government of Canada’s most populous province plans to increase the minimum wage 32% to $15 ($12 U.S.) an hour by the end of 2018, notes the news source, saying the impact “may be intensified by the fact that more than a tenth of its workforce makes the minimum rate, the highest share in the country.”

Grocery chains like Loblaw Cos. and Empire Co. are pushing back on the test, notes Bloomberg, saying the wage hike will cost them hundreds of millions of dollars and may accelerate the move to automation for areas such as self-checkout. Restaurant owners say the higher wage would hurt the industry’s profit margin and cost jobs.

“This is just too fast,” Ken Grondin, chief financial officer at Cara Operations Ltd., which runs some of Canada’s most popular eateries, told Bloomberg. “The highest cost risk is if the whole wage scale goes up by the same factor.”

Ontario’s government is advancing legislation to raise the minimum wage to C$14 at the beginning of 2018, making it the steepest in Canada, writes Bloomberg. The wage would move to C$15 at the end of 2018.

Morley Gunderson, a University of Toronto professor emeritus, told the news source that a 10% minimum wage increase cuts youth employment by at least 3%. A jump of more than 30% is “huge,” he said.

“I think that’s going to trigger even larger impacts,” he told Bloomberg. “It is at best an exceedingly blunt instrument for dealing with poverty and it may even be harmful.” He added that the hardest hit would be low-skilled workers.

The higher minimum wage may also put Ontario at a competitive disadvantage to its neighbors including Quebec, New York and Michigan.

“I know this is going to be challenging for business,” Kevin Flynn, the government’s labor minister, told Bloomberg. “I don’t think it’s a roll of the dice, I think it’s a call to action,” he said. “Surely the minimum wage that you’re allowed to pay somebody should give them a basic living.”

The news source adds that it will take several years before enough data is collected that will allow researchers to study the effects of Ontario’s minimum wage increase.

“The overall evidence from all over, Canada, the U.S. and Europe is mixed,” Gunderson told Bloomberg. “You won’t settle the debate but it will be more credible in some ways—it will be an opportunity.”